California should eliminate the independent agency overseeing its planned high-speed-rail system and hand over development of the project to Caltrans, the nonpartisan legislative analyst concluded in a report issued Tuesday.

The state should also consider scrapping its current plan to begin construction on the system with 140 miles of track in the Central Valley - a change that would require approval from the federal government. Instead, officials should consider building the first portion of the system in either Northern or Southern California, or between the Bay Area and the Central Valley, the report says.

As the Legislature weighs these changes, it should slash funding for the project from the requested $185 million next fiscal year to just $7 million, the Legislative Analyst's Office report additionally recommends.

The current plan, crafted by the California High-Speed Rail Authority, calls for construction of the 800-mile statewide system to begin with that 140- mile, $6.3 billion Central Valley section, which would run south from Chowchilla through Fresno to Bakersfield. The location of that section, which has been criticized as a "train to nowhere," was largely chosen because federal authorities required it as a condition of the $3.6 billion in federal funds the state has secured for the project.

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But the report recommends that state officials seek more flexibility from the federal government in how it uses those federal funds and in the deadlines for spending that money.

"Clearly, it presents a major gamble (by) the state," Legislative Analyst Mac Taylor said Tuesday. "If additional federal funds are not available, it means that segment is not viable by itself. ... You can't have just a Central Valley segment."

Taylor said that despite the strict requirements attached to the funding, federal authorities will probably want to work with California to make its project a success.

"This is the only viable high-speed rail project in the country," Taylor said. "They have every reason to make sure it is as viable as we do."

The report also takes issue with the rail authority and board overseeing it.

Since the authority was created in 1996, the report states, its "operational structure and staffing practices have not kept pace with the project's changing demands." The report recommends shifting some or all of the responsibly for overseeing construction of the rail line to another state agency, and says the state Department of Transportation is the best option.

The authority did not specifically respond to this recommendation. In a statement, Executive Director Roelof van Ark said that the report will be "thoroughly reviewed."

The report also raises questions about the project's financing. The analyst wrote that the total $17 billion to $19 billion the authority expects to receive from the federal government appears "unrealistic." The report warns that when California issues the $9 billion in bonds approved for the rail system in 2008 by voters, it will saddle the state's deficit-plagued general fund with $1 billion in annual debt service payments for two decades.

The report vindicates critics of the authority and the project, said Assemblywoman Diane Harkey, R-Dana Point (Orange County).

"Because this is a one-of-a-kind, never-been-tried project that will be so obviously costly, we really need to determine if we need it," she said.

But supporters warned that state leaders could put the entire project in jeopardy if they delay progress. Assemblywoman Cathleen Galgiani, D-Livingston (Merced County), called the report "just an opinion" and slammed the recommendation to curb funding.

"There will always be some who will continue to slam the California High-Speed Rail Authority in the knees with a baseball bat and then ask them why they can't run any faster," she said.